2009-03-04

Quick 55% Run for Top Stocks

Hello, I'm Ian Wyatt. I'm the publisher of Big Idea Investor. In addition, I publish three highly successful monthly newsletters Growth Report, Rising Star Stocks and Top Stock Insights.

I know I'm throwing a lot of names at you. And don't worry, my head is swimming a little bit, too. I started writing investment advice 11 years ago. Even a year ago, I had just three employees. Now, I've got 17 people on my staff in full-time positions and many more contributing to the stock research and analysis we're known for.

Our growth has been staggering, and I have loyal readers like you to thank. So thank you very much for your support.

As you might guess, running a growing, successful business is more than a full time job. Sometimes it feels like I'm being pulled in 6 different directions at once. As it became clear that I wanted to expand the research and coverage of the stocks and investments that readers have come to rely on I knew I needed a top-notch analyst. For that position I hired a former investment banker and hedge fund analyst: Benson George.

Benson and his wunderkind protégé Jason Cimpl are the best in the business. They do an amazing job digging through tens of thousands of stocks to find the absolute best investment opportunities for my readers.

I still act as the Chief Investment Strategist for all of my publications. I still review the quality of stocks that we're putting out there. But quite honestly, I sometimes feel like I've been out of touch with my readers. And that's why I'm writing to you today.

In fact, it's why I will be writing to you every week in the future. You see, I'm getting back to my roots. And I couldn't be more excited about it.

Every week, you'll find me right here in Big Idea Investor. I'll be bringing you a taste of the investments that Benson and Jason dig up. I'll be sharing investment ideas, strategies and my take on what's going on here in the U.S. and around the world. I'll help you not only weather these rough days in the market, but actually find the profit opportunities that are out there, if you know where to look.

As you may know, the Fed gave the markets a gift yesterday by extending emergency loans to help some of these lenders who are holding non-performing assets. I don't have to tell you that stocks of all kinds have beaten around pretty badly since the start of the year. And the main culprit has been the re-packaging of bad loans made during the hey-day of the housing bubble.

At Big Idea Investor, we're not going to look a gift horse in the mouth. The Fed has given the stock market just what it needs. And with the market's credit-crunch fears easing, right now appears to be a perfect time to buy stocks.

So I'm going to kick off what should be the start of return to the bull market with a stock that first appeared in the January issue of Growth Report.

Growth Report's approach is pretty simple � every month we bring you two small cap stocks that are entering their "sweet spot." These companies are just starting to see revenues and earnings really ramp up. The company I'll share with you today just posted 135% yearly revenue growth and 145% earnings growth.

But the best part is, the stock is virtually unknown on Wall Street. However, a couple more quarters of this type of growth and Wall Street will get on board.

China's Agricultural Miracle

We hear about China's economic miracle all the time. The country's growth rate averaged above 9% per year from 1978 to date. China has now overtaken Japan and is the second-largest economy in the world.

In terms of manufacturing, China is already even with the United States (PRC at $2.717 trillion versus US at $2.70 trillion). Add to this the fact that China's urban population is projected to grow to 900 million by 2020 from today's 500 million people, and you begin to appreciate why China's growth is far from over.

Needless to say, we at Growth Report keep Chinese stocks in a prominent position on our radar. Today, I'd like to share one of our Chinese investment ideas with you.

Economic miracles aside, China is also performing an agricultural miracle. China is feeding a population that's 4.5 times that of the United States. And it's doing it with 25% less arable land.

Clearly, China has to get the highest yield possible from the crops it grows. This lead to a heavy reliance on fertilizers.

China is the world leader in agricultural output. It also uses more fertilizer than any other country. Now, we've all heard about tainted food and other problems with Chinese exports. But the simple fact remains, China has to grow as much food as possible. And fertilizers will continue to be a part of that formula.

Fertile Ground

Hanfeng Evergreens Company (TSX:HF), headquartered in Toronto, is China's leading manufacturer of fertilizers for agriculture. Hanfeng's products are designed to meet China's unique agricultural needs: increased yields, reduced labor costs, improved plant growth, and reduced pollution (runoff).

The company's focus is on slow-release fertilizers, which help increase yields and reduce labor inputs. Hanfeng's primary products include slow-release sulfur-coated urea (SCU) and premium nitrogen, phosphate and potassium (NPK) granules.

Hanfeng Evergreen currently produces 650,000 metric tons of various engineered fertilizers annually. Annual production is expected to increase to 800,000 metric tons by 2009 (in case you hadn't noticed, that's a 23% increase in one year). It is accomplishing this growth organically and through strategic partnerships with other fertilizer makers with established distribution systems.

Hanfeng is focused on maintaining a strategic edge in technology through acquisition. It has acquired an exclusive license for slow-release and premium NPK production technology and has established the country's first private R&D center for value-added fertilizers.

The company is also well-positioned geographically in China's two prime agricultural regions: the China East region (Jiangsu, Shandong, Anhui and Zhejiang provinces and Shanghai) and the Northeast China region (Heilongjiang, Jilin and Liaoning provinces and the Inner Mongolia Autonomous Region). These names may not mean a lot to you, but they represent some of the most fertile agricultural regions in China. They are to China what the Midwest and Central Valley of California are to the U.S.

Hanfeng is currently working with Dr. Yuan Longping, known as "the father of hybrid rice." In 2006, Hanfeng began field trials of SCU slow-release fertilizer in association with Dr. Longping, who is the director of the China National Hybrid Rice R&D Center. The effort will measure the effectiveness of SCU fertilizer in increasing rice crop yield and the quality of the center's "super rice" hybrid. Pending a favorable outcome, Hanfeng's SCU will be marketed as the preferred fertilizer to use with the "super rice."

Hanfeng Evergreen's performance has been striking, and the company is, we believe, entering a strong growth period. For fiscal 2007, revenues were $141.3 million, versus $59.8 million for all of 2006. Revenue estimates for 2008 and 2009 are $176.2 and $268.4 million, respectively. Per-share earnings were $0.34 in 2007, and expected to be $0.55 and $0.74 in 2008 and 2009, respectively.

Clearly, this company has some serious growth coming. And with $43 million in cash, Hanfeng should be able to add capacity as needed to continue that growth organically.

Growth Report gives Hanfeng Evergreens Company a "buy" rating based on strong product demand and revenue growth. Based on an upwardly revised FY2008 EPS estimate of $0.63, Hanfeng would be currently trading at a forward P/E of 21. Revenues will continue to grow and costs will be reduced due to economies of scale. We believe a forward P/E of 26 is more appropriate for Hanfeng. Our target price of $20 is based on a forward P/E of 26 times 2009 EPS of $0.87.

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